What is the reason for the financial year to commence from 1st April and not 1st January?
Posted on: 01/Apr/2019 10:02:26 PM
There are several reasons why this financial (fiscal) year and calendar year do not coincide - the answer depends on whom you ask. There are few countries that follow this system like India, United Kingdom, Canada, New Zealand, Hong Kong, and Japan. If you look closely at these Countries, they are Britain and its colonies and the practice has continued and thus, the origin is British!
History
More importantly, looking at the history of the UK, prior to 1752 the UK still adhered to the Julian calendar and the first day of a new year was 25th March. The calendar reforms of that year brought the country into line with the Gregorian calendar on the continent by removing 11 days from September and starting the year on 1st Jan. To avoid messing up their accounts with short or long years the financial institutions kept the start of the fiscal year where it was, that is, 25th March but shifted by 11 days to 5th April.
Over the years this decision seemed to make sense as it avoided the Christmas & New Year`s holiday. So that accounting year doesn`t coincide with the periods of high activity/sales, such as Christmas and New Year. Moreover no wants to pore over the books on New Year`s Eve.
Focus on India
India being an agricultural economy, revenue generally depends on the unpredictable outcome of the main crop being ripe in February / March.
India enacted the Income-Tax Act in 1961. The Act came into force from April 1, 1962, and this is the main reason why our fiscal year begins on April 1 every year.
1st April coincided with the Hindi festival of Vaisakha / Ugadi / Bihu i.e. Hindi new year. So, the East India Company in Bengal decided to synchronise its financial year with the Hindi calendar to ease financial transactions.
